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President Obama announces White House Chief of Staff Bill Daley is resigning

Daley will be replaced by Jack Lew, the White House budget director

A source says Daley will remain on the job through January

President Barack Obama announced Monday that White House Chief of Staff Bill Daley is stepping down and will be replaced by Office of Management and Budget Director Jack Lew.

Two senior Obama aides told CNN that Daley will stay in his job through January, including the State of the Union address.

The chief of staff is in charge of White House staff and operations and is a senior adviser to the president.

A senior Obama campaign aide told CNN on Monday that Daley will serve as one of the co-chairs for Obama's re-election campaign. The other co-chair will be announced in coming weeks, the aide said.

"He's got a ton of political experience, knowledge and contacts, and we look forward to leveraging those assets and working closely together to re-elect the president this year," the campaign aide said of Daley, who was the campaign chairman for Al Gore's presidential run in 2000.

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"There is no question that I'm going to deeply miss him by my side here at the White House," Obama said of Daley, who became chief of staff a year ago when Rahm Emanuel resigned to run for mayor of Chicago.

Daley, 63, was chosen as chief of staff last year to bring a moderating influence to the White House in an attempt to seek a middle path with Republicans on contentious budget issues.

A Chicago native, Daley was widely regarded as the force behind getting the NAFTA agreement passed through the Republican-controlled Congress when he served as Commerce secretary in the Clinton administration.

With Obama now involved in election-year politics, the president has taken steps to appeal to his Democratic base, such as his recess appointment of Richard Cordray as head of a new consumer protection agency.

According to a senior Obama aide, Daley told Obama last week that it was best for the president and the White House if Daley stepped aside.

A top Democratic congressional aide told CNN that Daley's relations with Democratic legislators were strained. According to the aide, congressional Democrats believed Daley did a poor job of reaching out to legislators and listening to their ideas during contentious budget and debt ceiling negotiations last year.

In particular, the aide said, relations grew tense after Obama tried to cut a major deficit reduction agreement with U.S. House Speaker John Boehner and congressional Democrats learned of it by reading about it in the news media.

The aide also said Senate Majority Leader Harry Reid, D-Nevada, called Obama to complain about Daley after a controversy over the scheduling of the president's jobs speech to Congress. The speech was rescheduled after Boehner complained about the initial date requested by the White House in a dispute characterized as emblematic of dysfunction in Washington.

In his resignation letter dated January 3, Daley praised Obama's efforts to address the nation's long-term fiscal problems and said the president "made Americans aware and supportive of a balanced approach" that is needed.

He also cited Obama's determination in ending the war in Iraq and "bringing Osama bin Laden to justice," as well as the president's efforts in getting new free-trade agreements through Congress.

"I have been honored to be a small part of your administration," Daley's letter said. "It is time for me to go back to the city I love."

According to multiple Democratic sources, Daley found it hard to break in at a White House where Obama already received advice from long-time aides.

In addition, Daley was unable to get Obama to agree to staff changes that Daley thought were necessary to make the White House function better, Democratic sources said.

The Democratic sources also said that Obama's campaign focus, which positions him as champion of working Americans, made one of Daley's roles -- improving White House relations with the business community -- a lesser priority.

Lew, meanwhile, will remain in place for now to finish the 2013 budget proposal, which is due in early February, said Kenneth Baer, the Office of Management and Budget communications director.

"Whatever decision the president makes about who is to lead the agency (after Lew departs), there will be a continuity of leadership at the highest levels," Baer said of the OMB.

Lew became OMB director in November 2010, succeeding Peter Orszag. Lew also held the post in the Clinton administration and later served as deputy secretary of state for management and resources in the Obama administration.

He will be the third chief of staff under Obama, after Emanuel and Daley. In addition, Pete Rouse briefly served as interim chief of staff between Lew's two predecessors.